Death Defying**: AKA Contribution reserving

Contribution reserving has for many years been largely viewed as a strategy that in most instances will be too aggressive to comply with the approach the Tax Office is comfortable with in this space.

This said, the Tax Office Determination (TD) 2013/22 does appear to confirm that, subject to the governing rules of an SMSF trust deed, some basic contribution reserving can occur.

In particular, assuming the trust deed and the fund’s reserving strategy, are complied with, then TD 2013/22 supports an approach along the following lines:

1. a fund member can make a contribution to a SMSF that is double their concessional contribution cap in the one financial year;
2. half of the contribution can then be applied to, for example, an 'unallocated contribution account'. Arguably, an unallocated contribution account is analogous to a reserve account;
3. the other half would then be counted towards the relevant member's concessional contribution cap for the first financial year; and
4. in the second financial year, the trustees of the fund would resolve to allocate the amount applied to the unallocated contribution account to the relevant member and it would then be applied to that member's concessional contribution cap in the subsequent year - i.e. the year of actual allocation.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** for the trainspotters, the title today is riffed from the Hoodoo Gurus song 'Death Defying'.

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When is the right time** to get structuring of business assets right?

Last week, we had a client wanting to revisit their business structure, and in particular, the decision to run all aspects of the business via the one legal entity (in this instance a company).

The particular issue of focus was in relation to the risks that attach to certain items of plant and equipment that, in a worst case scenario, could cause serious injury (or death) to employees.

The same items of plant and equipment were owned by the entity that held the goodwill of the business as well as other real property assets.

While there were a myriad of issues that needed to be addressed, at a basic level, we explored the movement of the items of plant out of the existing company into a 'standalone' special purpose vehicle (‘SPV’) that would house the plant and equipment. The SPV would then lease the plant and equipment back to the operating entity - and thereby comply with the rules of ‘domino theory’ (as explored in previous View posts).

The work involved in achieving this part of the restructure was not significant and given that in the circumstances it could be done without any tax or stamp duty consequences, the customer saw it as a sensible step to implement immediately.

While the exact stamp duty and tax outcomes will depend on the circumstances, it is worth keeping this style of SPV solution in mind as an example that there can be relatively simple restructure ideas implemented without significant time delays or cost investment.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** for the trainspotters, the title today is riffed from the Hoodoo Gurus song 'The Right Time'.

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I want you back!** Finding lost trust deeds

Recent posts have considered various issues in relation to lost trust deeds.

Due to the difficulties that arise when a trust deed is lost, the preferred solution is to locate the original deed.

The types of searches most likely to be successful in relation to locating a lost trust instrument include:

1. Former and or present banks, as trust deeds are often required to be produced to open accounts or enter into finance arrangements;
2. Past and present lawyers, including the lawyer who prepared the deed as they will often keep an original or copy of the trust deed for their own records;
3. Accountants, past and present for similar reasons as lawyers, they may have access to at least a copy of an original trust deed;
4. In some states, if the trust has ever owned real property it can be useful to contact the Land Titles Office, in that jurisdiction. It may be that the department will have retained a full copy of the trust instrument on the initial acquisition of the property;
5. This particular alternative is however not available in all jurisdictions. For example, New South Wales prohibits the disclosure of the existence of a trust relationship on title, so there will never be trust instruments with that department. The approach is also dependent on the exact practices from time to time of the relevant department;
6. Where none of the above pathways prove successful, there can be benefits in contacting the original settlor of the trust, particularly if they were not directly associated with the law firm that established the trust. Alternatively, other parties that have had any dealings with the trust from time to time should also be contacted. For example:
1. a beneficiary that is known to have historically received a distribution (or close relatives of deceased beneficiaries who are known to have received a distribution);
2. former trustees; and
3. parties who have held a position of authority with the trust, for example, appointors, principals, guardians or nominators.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Hoodoo Gurus song 'I want you back'.

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Dig it up** - Lost trust deeds & another case to remember

Last week's post considered arguably the leading case in relation to lost trust deeds.

The case of Re Porlock Pty Ltd [2015] NSWSC 1243 provides further insight into the issues a court will consider where a trust deed has been lost.

In this case, the plaintiff was the trustee of the JBD Carr Trust No 2 which was established in 1957 and by the time of the court application had substantial assets. The trustee applied to court seeking advice pursuant to the powers under the relevant Trusts Act confirming how it held the property.

As part of the search for the deed, a letter was produced by the accountant of the trust which outlined how the income and capital of the trust was to be distributed. The trustee produced a supporting affidavit from the accountant indicating the letter was likely to be an accurate summary of the deed as he recalled quoting the trust deed itself when drafting the letter.

In making an order, the court concluded that the trustee would be justified acting in accordance with the letter as this was the ‘best evidence’ of the trust’s terms.

Importantly, the court confirmed that if the trust deed were to be found and a claim brought against the trustee by other parties who may be entitled under the deed, the trustee would not be personally liable for any breach of trust so long as they followed the advice of the court.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Hoodoo Gurus song 'Dig it up'.

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Do you know Hoo(doo) is your customer?

In recent times, we have had a number of situations where, when acting for a family group, one member of the group is particularly concerned about asset protection issues.

All advisers providing guidance in this space should be aware that from a privilege perspective, much can turn on very practical issues such as:

1. Who the customer is defined as being?
2. In what name the file is opened up in?
3. Who the correspondence is directed to (including via email)?
4. Who is invoiced?
5. Who pays the invoice?

While each of these issues can on their face seem quite benign, if the worst turn of events occurs (and bankruptcy proceedings are commenced), each of the above points can become quite critical.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** for the trainspotters, the title today is riffed from the Hoodoo Gurus song 'Hoodoo you love'.

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